Start-Up Hopes Its Alternative to Stereo Becomes Sound of the Future : Audio: The technology, purchased by SRS Labs from Hughes Aircraft in June, enhances sound for two-speaker stereos but eliminates the sweet spot.

Hughes Aircraft Co. spent an estimated $4 million developing a sound technology that fans said could be the successor to stereo. But just when the technology was beginning to generate sales, the aerospace giant put the sound division up for sale to focus on its core business.

That might have been the end of Arnold I. Klayman's invention, known as SRS. But Stephen V. Sedmak of Irvine decided he could give Klayman's Sound Retrieval System another chance at an entrepreneurial company.

A telecommunications consultant with money to invest, Sedmak teamed up with investment banker Walter Cruttenden III and the Hughes engineers who invented the technology to create SRS Labs Inc. The company acquired the Hughes inventory and technology, including three patents, for an undisclosed price in June. Now Sedmak is the chief SRS evangelist as president of the seven-person firm.

"We believe we are the next technology that will supplant stereo, which is a 30-year-old technology," Sedmak said. "Hughes did an unbelievable job developing it. We will take it to the next level."

SRS enhances sound for two-speaker stereos to make it seem as if the sound comes from all directions. SRS dissects the components of sound waves, determines what directions they come from and reproduces them in the right proportions so that when the sounds come out of a stereo speaker, the listener hears them more realistically.

As a result, SRS eliminates any "sweet spot," or a place in the room where the sound is best. Instead, almost any spot in the room delivers high-quality sound, as in a movie theater or with a multi-speaker "surround-sound" system.

"SRS is like embracing someone with sound, versus the conventional stereo that confronts you head on with sound from one direction," Sedmak said. "It immerses the person in sound."

Klayman spent 25 years developing sound technology that led to SRS. Hughes bought the technology and hired Klayman as a senior scientist in 1986, creating a sound lab for him and his engineers dubbed Arnold's Sandbox.

Klayman, 67, who served as consultant to SRS Labs for the past six months, will officially retire from Hughes on Jan. 1 and join SRS Labs as director of advanced development. SRS Labs even bought the entire sandbox--a soundproof room with gads of electronic equipment--and moved it to the company's headquarters in Newport Beach.

Hughes launched the first product based on Klayman's sound retrieval system technology, the AK-100, in 1991. Hughes licensed the technology to TV makers Sony Corp. and RCA (several dozen models now prominently feature the SRS logo) and separately marketed more than 10,000 of the $299 components to stereo buffs.

Since June, Sedmak has licensed SRS technology to companies designing home entertainment for computers and video games. Products ready for release include the Game Gizmo 3D, a $79 sound module that brings SRS stereo sound to mono-speaker Nintendo and Sega game systems. Game Players Magazine, with 300,000 subscribers, gave SRS Labs its "Ultimate Award" for the product.

"When SRS first approached me, I was skeptical and told them it was impossible," said Dave Appleman, president of Calypso Micro Products, the device manufacturer in Los Gatos, Calif. "But they convinced us. Since we announced it in November, the reception has been so warm that we're tripling our production plans."

SRS is also part of some sound cards (used in personal computers to give better sound) being made by Alpha Systems Lab Inc. in Irvine. Alpha is selling the cards for $229 to $299.

Sedmak said SRS Labs, which has no plans to manufacture the equipment itself, also hopes to license its technology for professional audio machines,--from movie theaters to sound recording studios.